Geoff Prosser (Forrest, Liberal Party) Share this | Link to this | Hansard source

The Trade Practices Amendment (National Access Regime) Bill 2005 makes amendments to the Trade Practices Act 1974 that will implement the government’s response to the Productivity Commission’s report No. 17, Review of the national access regime. The review supported the retention of the regime but made 33 recommendations seeking to improve the regime’s operation, including changes to clarify the regime’s objectives and scope, encourage efficient investment in new infrastructure, strengthen incentives for commercial negotiation and improve the certainty and transparency for regulatory processes. The majority of these recommendations were endorsed by the government.

These changes aim to provide a balance between ensuring a means for business to gain access to nationally significant infrastructure while providing incentives for new investment. The changes are also designed to provide access seekers and investors with greater confidence and certainty about the regulatory framework to enable them to make well-informed decisions.

The national access regime comprises two components—a legislative framework contained in part IIIA of the Trade Practices Act 1974, and clause 6 of the 1995 Competition Principles Agreement negotiated between the Commonwealth, state and territory governments. Under part IIIA, business can seek access to strategically important infrastructure services on reasonable terms and conditions. This access can be sought in cases where replicating the infrastructure concerned would not be economically feasible and where commercial negotiations with the infrastructure owner or operator has failed. This is to ensure that facilities with natural monopolies do not create barriers to competition.

The national access regime establishes three pathways available for an access seeker to gain access to a strategically important infrastructure service under part IIIA. The parties seeking access may apply to the National Competition Council to have the service declared. Declaration gives the access seeker a right to negotiate with a service provider, with provision for arbitration by the Australian Competition and Consumer Commission if these negotiations are unsuccessful. Declaration of a service under part IIIA establishes a right for access seekers to negotiate terms and conditions of access with facility owners. If negotiation is unsuccessful, part IIIA establishes an enforceable right to dispute resolution through arbitration by either a private arbitrator or the Australian Competition and Consumer Commission.

While part IIIA does not preclude private negotiation between an access seeker and a facility owner, declaration of a service shifts the negotiating balance. The fact that negotiations for declared services are underpinned by the threat of arbitration will inevitably condition those negotiations. Negotiation between access seekers and access providers can also be affected by imbalances in information available to the parties. A service provider’s greater appreciation of the cost and price structures for the services in question, their technical operation and the degree of spare capacity weakens the bargaining position of the access seeker. Under the declaration process, access is provided only to services produced by the infrastructure facility and not to the facility itself.

Section 44B provides clarification that the term ‘service’ includes the use of an infrastructure facility such as a road or railway line, handling or transporting things such as goods or people, and a communications service or similar service but that it excludes the supply of goods, the use of intellectual property or the production process, except to the extent that it is an integral or subsidiary part of the service. Further, declaration is only possible if the infrastructure facility by which the services are being provided is of national significance having regard to the size of the facility, the importance of the facility to constitutional trade or commerce or the importance of the facility to the national economy. In addition, it must also be uneconomical for anyone to develop another facility to provide the service.

As a consequence, the service providers in this context either own or operate a facility of national significance, duplication of which must be uneconomical, that is used or is to be used to provide a service subject to declaration. Such facilities traditionally tend to be in public ownership due in part to the significant capital required to develop a facility. Since the mid-nineties, however, many of these previously government owned vertically integrated entities such as electricity, rail, gas and port sectors have been privatised or corporatised and have been subjected to vertical separation.

Infrastructure service providers will now be either a vertically integrated provider, such as a provider of an infrastructure service that also provides services in an upstream or downstream market—for example, an electricity authority responsible for generation, transmission and distribution—or a non-integrated provider, such as a provider of an infrastructure service that is not involved in providing services in upstream or downstream markets. As the services provided by these natural monopoly facilities have been subjected to varying forms of contestability, third party access seekers could include participants from a wide range of sectors motivated to compete on reasonable terms and conditions with service providers.

A party may also seek access through an ‘effective’ access regime. Where an effective access regime already exists, declaration is not available and an access seeker must use the effective regime. In the case of a state or territory access regime, the question of effectiveness can be pre-determined through the process of ‘certification’. An access regime can be certified as effective by the Commonwealth minister following the council’s recommendation that the regime satisfies the clause 6(4) criteria contained in the competition principles agreement.

A party may also seek access under the provisions of an access undertaking. Part IIIA allows service providers to submit a voluntary access undertaking to the commission for approval. An undertaking sets out the terms and conditions under which access to the service or services will be provided. An undertaking may be submitted in relation to existing or proposed infrastructure and can either apply to an individual service or provide the basis for an industry access code.

Services covered by undertakings cannot be declared. I must add here that, while I generally support the principles of third party access—such as power generation utilities feeding into a grid that gives better competition—there are, however, certain circumstances where I do not support third party access. The best example that I can give is the rail infrastructure in the iron ore industry in the north-west of Western Australia.

Effectively, the whole rail and loco activity is deemed to be part of the same process. Indeed, when the diesel fuel rebate did not apply to locomotives in the rail industry, it could be claimed by the iron ore industry because the locomotives were deemed to be part of the total mining operation process. The entire process is about the management, scheduling and coordination of the rail network and rolling stock. The success of the north-west operation is that one entity coordinates the entire operation over all managed sites.

The iron ore companies operate their fleets so that they can extract different grade orders from different mines to get the material to their blending operations at the port, and they make highly efficient use of their infrastructure to complete the process to meet growing export demands. Therefore, one of the challenges with third party access is the adverse impact on existing operators. The mine-to-rail-to-port activity is an integrated logistics chain and is considered to be one complete process that does not lend itself well to interruptions and to being shared with third parties.

Third party access could be accommodated, in my view, provided a single entity controlled the operation to ensure that there was minimal disruption to the mining infrastructure and that there was no reduction in production outputs. Third party access would have to be compatible and assimilate with current operations and procedures. If giving third party access to rail infrastructure in the mining sector in Western Australia had the effect of lowering production efficiency and increasing the cost base, in this instance I would not support third party access to existing infrastructure.

The major changes proposed in the bill give effect to the government response and include the insertion of a new objectives clause in part IIIA to provide for greater certainty for infrastructure owners, access seekers, investors and other interested parties. The bill also requires decision makers under part IIIA to have regard to the objectives clause when making their respective decisions. The objectives clause emphasises the need for part IIIA decisions to promote competition by promoting the economically efficient operations and use of investment in infrastructure.

It also recognises the role of the national access regime in establishing a framework to promote a consistent approach to access regulation in industry-specific access regimes. The implementation of the objectives clause will promote consistency and provide guidance to decision makers in the application of part IIIA. This will enhance regulatory accountability and ensure certainty for all stakeholders, as well as contribute to greater investor confidence in investing in infrastructure facilities.

The national access regime seeks to promote competition in the economy by promoting the efficient investment in, and use of, infrastructure facilities of national significance and it provides an avenue by which firms can seek access to services provided through infrastructure facilities owned and operated by others. To this end, the bill will encourage efficient investment by the introduction of pricing principles that will provide additional certainty to regulated firms and access seekers and will help to address concerns that a regulator’s own values will unduly influence decisions relating to the terms and conditions of access. The pricing principles will assist in ensuring consistent and transparent regulatory outcomes. They will also enhance certainty for investors and access seekers and facilitate commercial negotiations between parties.

Changes are also proposed to the declaration threshold. The government has agreed to amend the ‘promote competition’ declaration criteria contained in paragraph 44G(2)(a) to ensure that access declarations are only granted where the expected increase in competition in an upstream or downstream market is not trivial. A number of criteria must be met before a service provided by means of an infrastructure facility can be declared under part IIIA, thereby giving third parties the right to negotiate access with the service provider. These include: access to a service would promote competition in at least one market, other than the market for the service; the infrastructure facility is of national significance; and access, or increased access, to the service would not be contrary to the public interest.

The bill amends the criteria so that declarations of service cannot be recommended unless access to a particular service would promote a material increase in at least one market, other than the market for the service. This should help reduce any uncertainty for access providers and lessen the perceived regulatory risk of the regime for prospective investors in significant infrastructure.

A number of changes are proposed under the existing arbitration requirements in part IIIA. The ACCC will be given discretion to conduct multilateral hearings in arbitrations, following notification to parties in a dispute. Such processes will allow the commission to consider the service in its entirety and could streamline administrative requirements and reduce costs. The arbitration provisions will be amended to make it explicit that, when arbitrating a dispute, the ACCC can require a service provider to permit interconnection to its facilities by the access seeker.

In the absence of any developed case law on this issue, the government is taking the opportunity to provide clear guidance in this area to access seekers and service providers. It is also proposed to finetune the provisions relating to arbitration of disputes over access to declared services to facilitate timely decision making and to ensure that the arbitration process is not used as a strategy to delay the provision of access to services.

The bill also applies a number of non-binding target time limits to various decisions under part IIIA. While the time limits are not binding on the decision makers concerned, they oblige the decision makers to publish a notice of any extension beyond the target time limit, thereby providing regulatory transparency, as well as increasing incentives for timely decision making.

The bill also introduces legislative provisions for public input on declaration and certification applications and proposed access undertakings where it is reasonable and practical for the National Competition Council or the ACCC, as the case may be, to undertake such consultation. This will provide for more informed decision making, particularly when assessing the public interest in each case. The bill places additional obligations on ministers, the council and the commission to publish reasons for their decisions or recommendations.

This will enhance procedural transparency and regulatory accountability and will facilitate informed consideration of whether there are grounds to challenge a decision by merit review before the tribunal or judicial review by the courts. The commission will also be required to publish reports on completed arbitrations for services declared under part IIIA. The bill sets out a range of minimum requirements to be included in the reports, but the specification of minimum requirements will not preclude the commission from reporting on a matter relevant to an arbitration, subject to the exclusion of confidential commercial information. Publication of arbitration reports will enhance regulatory transparency and may provide guidance for future cases.

In addition to encouraging efficient investment in infrastructure facilities, the bill also includes measures to enhance the incentives for commercial negotiation between access providers and access seekers. One such important measure is to allow access providers to lodge an undertaking after a service has been declared. Post-declaration undertakings will reduce the need to determine terms and conditions of access through arbitration procedures. This will improve certainty for service providers and access seekers and will facilitate commercial negotiations between them.

In conclusion, this bill significantly enhances the national access regime by introducing improvements that will further encourage efficient investment in and use of important infrastructure facilities in Australia. Importantly, the regime is not intended to replace commercial negotiations between access seekers and providers and seeks to support the legitimate interests of essential infrastructure owners.

The changes being proposed by the government provide a balance between ensuring a means for business to gain access to infrastructure, while providing incentives for new investment in essential infrastructure. The changes are also designed to provide access seekers and investors with confidence and certainty about the regulatory framework so they are able to make well-informed decisions. I commend the original bill to the House.

Debate (on motion by Mr Stephen Smith) adjourned.